3/25/2009 @ 2:40PM

Stocks Surrender Rally

A surprise uptick in two key economic readings lifted Wall Street early Wednesday, but with less than two hours to the close, the market trimmed its advance.

Investors latched onto signs the economy’s downward slide may be slowing, cheering unexpected increases in orders of durable goods and new home sales. The Commerce Department’s latest manufacturing gauge showed big-ticket item orders were up 3.4% in February, far better than the negatively revised 7.3% decline seen in January. Meanwhile, the government tallied 337,000 new home sales in February, and upped its January figure to 322,000, from 309,000. (See “Economic Data Indicate A Housing Thaw.”)

The reports helped the market firm up early Wednesday and seemed to validate Monday’s huge rally, but heading for the close, stocks eased as investors tested the recent advance. A $34.0 billion auction of five-year Treasury notes drew lighter demand than recent offerings, and may have jogged concerns that foreign buyers could lose their appetite for purchasing U.S. debt.

The S&P 500 was down 4 points, or 0.5%, at 802, dipping back below the key support level of 804; while the Dow Jones industrial average lost 27 points, or 0.4%, to 7,633; and the Nasdaq fell 12 points, or 0.8%, to 1,505. Financial stocks were the pacesetters again, shedding early gains, but
Bank of America
bucked the trend, holding up in positive territory after Chief Executive
Ken
Lewis
Ken Lewis
told the Los Angeles Times the firm intends to begin repaying loans from the Troubled Asset Relief Program in April. Shares of BofA were up 15 cents, or 2.1%, to $7.37.

Goldman Sachs
has also said it could begin repaying TARP loans sooner than anticipated, but the bank does not plan to sell part of its stake in Industrial & Commercial Bank of China to do so, contrary to rumors. The firm could still sell 20.0% of its 4.9% stake in the Chinese bank under a new agreement, but it will hold at least 80.0% of the position until 2010.
American Express
, on the other hand, said it may sell its 0.4% stake in ICBC once lock-up periods expire in April and October. Shares of American Express were down 35 cents, or 2.5%, to $13.55; Goldman lost $2.94, or 2.7%, to $107.66.

Treasury yields popped after the disappointing five-year note auction on a day when the Federal Reserve purchased $7.5 billion of longer-term U.S. debt in the first step of a $300.0 billion program. The benchmark 10-year note, which will likely be a focus of the central bank’s purchases, yielded 2.78% Wednesday, up from 2.66% late Tuesday. The
iShares Barclays 10-20 Year Treasury Bond Fund
, which tracks a range of longer maturities, lost 55 cents, or 0.5%, to $115.45 as prices sagged.